By Martin Hutchinson, Global Investing Strategist, Money Morning
In the mid 1990s, when I was working as a U.S. Treasury advisor toCroatia, I met with the managers of the U.S. Treasury's debt.
In what would turn out to be terrific advice, the Treasury officials suggested that we extend Croatia s' debt maturities so the Central European country wouldn't have to refinance too often.
So in gratitude, I offered the U.S. officials some counsel of my own.
I told them they should follow their own counsel and lengthen the U.S. Treasury's average debt maturities, then about six years.
The Treasury officials should have taken my advice. But instead they ignored me and did the exact opposite.
The upshot: Today the United States' debt maturities are among the shortest in the Organization of Economic Cooperation and Development (OECD), and U.S. refinancing costs are exceptionally large.
So if you're already worried about soaring budget deficits and the solvency of the United States, brace yourself - it's only going to get worse.
Wednesday, October 19, 2011
Chinese "Cyber Militias" Conducting Cyber Warfare
U.S. officials blame China's government, or agents acting on its behalf, for the theft of neutron bomb designs, the defense secretary's e-mails, and private sector intellectual property worth billions of dollars.
Indeed, the Financial Times recently reported that the People's Liberation Army (PLA) already has partnered with China's private sector to form "cyber militias," units of young computer programmers tasked with cyber attacks and cyber defense.
For instance, Nanhao Group, a Hengshui-based technology company that makes educational hardware and software, has been home to a PLA-sponsored cyber militia since 2005, according toThe FT.
"All staff under 30 belong to the unit," Nanhao Vice President Bai Guolian told the paper.
Bai confirmed that its cyber militia unit was led by the local PLA command and has "regular exchanges" with it, training PLA officers. Asked whether the group would carry out cyber attacks, he said: "That has nothing to do with you."
The Nanhao cyber militia is one of thousands, The FT said.
Indeed, the PLA first made cyber security and espionage a priority in 1999 and has been collecting external talent for its operations since 2002. In addition to its cyber militias, the PLA sponsors information warfare research and hacking competitions at universities.
That has the United States and other Western countries playing catch-up.
Indeed, the Financial Times recently reported that the People's Liberation Army (PLA) already has partnered with China's private sector to form "cyber militias," units of young computer programmers tasked with cyber attacks and cyber defense.
For instance, Nanhao Group, a Hengshui-based technology company that makes educational hardware and software, has been home to a PLA-sponsored cyber militia since 2005, according toThe FT.
"All staff under 30 belong to the unit," Nanhao Vice President Bai Guolian told the paper.
Bai confirmed that its cyber militia unit was led by the local PLA command and has "regular exchanges" with it, training PLA officers. Asked whether the group would carry out cyber attacks, he said: "That has nothing to do with you."
The Nanhao cyber militia is one of thousands, The FT said.
Indeed, the PLA first made cyber security and espionage a priority in 1999 and has been collecting external talent for its operations since 2002. In addition to its cyber militias, the PLA sponsors information warfare research and hacking competitions at universities.
That has the United States and other Western countries playing catch-up.
Sunday, October 16, 2011
Derivatives: The $600 Trillion Time Bomb That's Set to Explode By Keith Fitz-Gerald
Do you want to know the real reason banks aren't lending and the PIIGS have control of the barnyard in Europe?
It's because risk in the $600 trillion derivatives market isn't evening out. To the contrary, it's growing increasingly concentrated among a select few banks, especially here in the United States.
In 2009, five banks held 80% of derivatives in America. Now, just fourbanks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.
The four banks in question: JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS).
Derivatives played a crucial role in bringing down the global economy, so you would think that the world's top policymakers would have reined these things in by now - but they haven't.
Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.
Think I'm exaggerating?
The notional value of the world's derivatives actually is estimated at more than $600 trillion. Notional value, of course, is the total value of a leveraged position's assets. This distinction is necessary because when you're talking about leveraged assets like options and derivatives, a little bit of money can control a disproportionately large position that may be as much as 5, 10, 30, or, in extreme cases, 100 times greater than investments that could be funded only in cash instruments.
The world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.
It's because risk in the $600 trillion derivatives market isn't evening out. To the contrary, it's growing increasingly concentrated among a select few banks, especially here in the United States.
In 2009, five banks held 80% of derivatives in America. Now, just fourbanks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.
The four banks in question: JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS).
Derivatives played a crucial role in bringing down the global economy, so you would think that the world's top policymakers would have reined these things in by now - but they haven't.
Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.
Think I'm exaggerating?
The notional value of the world's derivatives actually is estimated at more than $600 trillion. Notional value, of course, is the total value of a leveraged position's assets. This distinction is necessary because when you're talking about leveraged assets like options and derivatives, a little bit of money can control a disproportionately large position that may be as much as 5, 10, 30, or, in extreme cases, 100 times greater than investments that could be funded only in cash instruments.
The world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.
Friday, October 14, 2011
These Three Men Represent Everything That's Wrong with Wall Street
By Shah Gilani, Capital Waves Strategist, Money Morning
I've already expressed my desire to embrace the Occupy Wall Street movement.I said last week that I would join in whole-heartedly if I knew exactly what the protesters were trying to achieve.
But I don't know - and I'm not convinced they do, either.
Still, that doesn't mean we should dismiss them entirely. After all, there are millions of Americans who sense there's something terribly wrong with our capitalist system, but they can't pinpoint exactly what it is either.
But I can.
Bad actors have done bad things to good institutions and our capitalist system. Today, I'm going to let you in on who three of those bad actors are.
You see, part of the problem is that when we think of the "bad guys" on Wall Street, or in Washington for that matter, we don't often think of specific people. We talk about "them" as faceless men we might imagine sitting in luxurious high-rises chewing on cigars and laughing as they rake in millions, or even billions of dollars on the backs of hardworking Americans.
I intend to fix that. I want to shed light on the faces of the people who are gaming the system and lay out before you the tools they're using to get away with it.
So, I'm going to start today with three of the biggest perpetrators of the mess we're in.
They are:
And now the notoriously murky derivatives market, which was hugely responsible for the 2008 financial crisis, has grown into a $600 trillion trouble spot for the economy.
This group of very influential and powerful men made sure there was no oversight of derivatives products and markets. None.
While that was an incredible gift to Wall Street's biggest banks and hedge funds, the Three Bears (I call them that because their actions drove us into the systemic economic bear market from which we're still struggling to emerge) weren't nearly done.
I've already expressed my desire to embrace the Occupy Wall Street movement.I said last week that I would join in whole-heartedly if I knew exactly what the protesters were trying to achieve.
But I don't know - and I'm not convinced they do, either.
Still, that doesn't mean we should dismiss them entirely. After all, there are millions of Americans who sense there's something terribly wrong with our capitalist system, but they can't pinpoint exactly what it is either.
But I can.
Bad actors have done bad things to good institutions and our capitalist system. Today, I'm going to let you in on who three of those bad actors are.
You see, part of the problem is that when we think of the "bad guys" on Wall Street, or in Washington for that matter, we don't often think of specific people. We talk about "them" as faceless men we might imagine sitting in luxurious high-rises chewing on cigars and laughing as they rake in millions, or even billions of dollars on the backs of hardworking Americans.
I intend to fix that. I want to shed light on the faces of the people who are gaming the system and lay out before you the tools they're using to get away with it.
So, I'm going to start today with three of the biggest perpetrators of the mess we're in.
The Three Bears
There are hundreds of bad actors on Wall Street, but three in particular tell the inside story of how appallingly corrupt our country has become.They are:
- Robert Rubin, who spent 26 years at Goldman Sachs Group Inc. (NYSE: GS), before becoming Treasury Secretary in the Clinton administration.
- Lawrence Summers, who came out of the World Bank and was Deputy Secretary of the Treasury under his pal Rubin before becoming Treasury Secretary himself in 1999.
- And Phil Gramm, once a practicing economist who served as a Republican Senator for Texas from 1985 to 2002.
And now the notoriously murky derivatives market, which was hugely responsible for the 2008 financial crisis, has grown into a $600 trillion trouble spot for the economy.
This group of very influential and powerful men made sure there was no oversight of derivatives products and markets. None.
While that was an incredible gift to Wall Street's biggest banks and hedge funds, the Three Bears (I call them that because their actions drove us into the systemic economic bear market from which we're still struggling to emerge) weren't nearly done.
Thursday, October 13, 2011
A $600 Trillion Time Bomb That's Set to Explode
By Keith Fitz-Gerald
Do you want to know the real reason banks aren't lending and the PIIGS have control of the barnyard in Europe?
It's because risk in the $600 trillion derivatives market isn't evening out. To the contrary, it's growing increasingly concentrated among a select few banks, especially here in the United States.
In 2009, five banks held 80% of derivatives in America. Now, just fourbanks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.
The four banks in question: JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS).
Derivatives played a crucial role in bringing down the global economy, so you would think that the world's top policymakers would have reined these things in by now - but they haven't.
Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.
Think I'm exaggerating?
The notional value of the world's derivatives actually is estimated at more than $600 trillion. Notional value, of course, is the total value of a leveraged position's assets. This distinction is necessary because when you're talking about leveraged assets like options and derivatives, a little bit of money can control a disproportionately large position that may be as much as 5, 10, 30, or, in extreme cases, 100 times greater than investments that could be funded only in cash instruments.
The world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.
Didn't we bail out these banks for just such stupid investments? Well they did not learn a thing, did they?
Here we go again. Hold on to what you have.
Do you want to know the real reason banks aren't lending and the PIIGS have control of the barnyard in Europe?
It's because risk in the $600 trillion derivatives market isn't evening out. To the contrary, it's growing increasingly concentrated among a select few banks, especially here in the United States.
In 2009, five banks held 80% of derivatives in America. Now, just fourbanks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.
The four banks in question: JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS).
Derivatives played a crucial role in bringing down the global economy, so you would think that the world's top policymakers would have reined these things in by now - but they haven't.
Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.
Think I'm exaggerating?
The notional value of the world's derivatives actually is estimated at more than $600 trillion. Notional value, of course, is the total value of a leveraged position's assets. This distinction is necessary because when you're talking about leveraged assets like options and derivatives, a little bit of money can control a disproportionately large position that may be as much as 5, 10, 30, or, in extreme cases, 100 times greater than investments that could be funded only in cash instruments.
The world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.
Didn't we bail out these banks for just such stupid investments? Well they did not learn a thing, did they?
Here we go again. Hold on to what you have.
Tuesday, October 11, 2011
U.S. Treasury Bonds Collapse: Moves Investors Must Make To Protect Their Wealth
by Martin Hutchinson
The U.S. Federal Reserve has been buying U.S. Treasury bonds at a rate of about $75 billion a month. That's part of Fed Chairman Ben S. Bernanke's "QE2" program, under which the central bank was to buy $600 billion of the government bonds.
But QE2 has officially ended, meaning the Fed will no longer be a big buyer of Treasury bonds.
And now the U.S. Treasury needs to sell twice as many Treasury bonds to end investors.
But the problem is, who's going to buy them?
Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.
Not Japan, which is trying to rebound from a massive earthquake, tsunami and nuclear disaster - and is focusing all its spending on reconstruction.
And - as we've seen - the Bernanke-led Fed isn't jumping back into the bond market.
I'm telling you right now: We are headed for an epic bond market crash. If you don't know about it, or don't care, you could get clobbered.
But if you do know, and are willing to take steps now, you can easily protect yourself - and even turn a nice profit in the process.
Having the two biggest external customers of U.S. debt largely out of the market is a huge problem. Unfortunately, those aren't the only challenges the market faces. The challenges just get bigger from there - which is why I'm predicting a bond market crash.
Steadily rising inflation is one of those challenges. Inflation is a huge threat to the bond markets, and is almost certain to create a whipping turbulence that will ultimately infect the stocks markets, too.
Many pundits will tell you that if investor demand for bonds declines, and investor fear of inflation increases, bond-market yields could increase in an orderly fashion.
But I can tell you that the bond markets don't work like that. Price declines affect existing bonds as well as new ones, so the value of every investor's bond holdings declines. And with many of those investors heavily leveraged - especially at the major international banks - the sight of year-end bonuses disappearing down the Swanee River as bonds are "marked to market" will cause a panic. That's especially true when end-of-quarter or end-of-year reporting periods loom.
That's why we can expect a bond market crash, and most likely it will come in September or December - at the end of a quarter or fiscal year.
One sad - even scary - fact about the looming bond market crash is that Fed Chairman Bernanke won't be able to do much about it ... though he'll certain try.
Consumer price inflation is now running at 3.6% year-on-year while producer price inflation is running at 7.2%. In that kind of environment, a 10-year Treasury bond yielding 3% is no longer economically attractive. Since monetary conditions worldwide remain very loose, inflation in the U.S. and worldwide will trend up, not down.
The bottom line: At some point, the "value proposition" offered to Treasury bond investors will become impossibly unattractive. When that happens, expect a rush to the exits.
If Bernanke attempts "QE3" - a third round of "quantitative easing" - he will have a problem. If other investors head for the exits, Bernanke may find that the U.S. central bank is as jammed up as the European Central Bank (ECB) currently is with Greek debt: Both will end up as the suckers that are taking all the rubbish off everyone else's books.
There's a limit to how much Treasury paper even Bernanke thinks he can buy. And if everyone else is selling, that "limit" won't be high enough to save the bond market.
With Bernanke buying at a rapid rate, the inflationary forces will be even stronger, and each monthly Bureau of Labor Statistics report on price indices will cause another massive swoon in the Treasury bond market.
Eventually, there has to be a new head of the Fed - a Paul A. Volcker 2.0 who is truly committed to conquering inflation. Alas, it won't be Volcker himself since, at 84, he is probably too old.
But it might be John B. Taylor, who invented the "Taylor Rule" for Fed policy. The Taylor Rule is a pretty soggy guide for running a monetary system. But it's been flashing bright red signals about the current Fed's monetary policy since 2008.
However, since a Fed chairman who is actually serious about fighting inflation would be a huge burden for current U.S. President Barack Obama to bear - and could badly hamper his chances for re-election, any such appointment is unlikely before November 2012.
For you as an investor, this insight leads to two conclusions that you can put to work to your advantage.
The coming economic atmosphere will be:
First and foremost, if Bernanke were not around, I would expect gold prices to fall following a bond market crash. But since he's still at the helm at the Fed, I expect him to do "QE3" in the event of a crash. And that means gold - not Treasury bonds - would become an investor "safe haven."
You can expect gold prices to zoom up, peaking at a much higher level around the time Bernanke is finally replaced. Silver will also follow this trend. So buy substantial holdings of either physical gold and silver.
There is is folks, in a nutshell: IF YOU ARE NOT BUYING GOLD AND SILVER EXPECT YOUR DOLLAR TO CONTINUE TO BE WORTH LESS AND LESS IN THE COMING MONTHS! REMEMBER, IT'S YOUR MONEY AT RISK!!!!
If you need help finding good buys in GOLD or SILVER just e-mail me
busby.ronnie@yahoo.com
Thanks in advance,
Ronnie Busby
The U.S. Federal Reserve has been buying U.S. Treasury bonds at a rate of about $75 billion a month. That's part of Fed Chairman Ben S. Bernanke's "QE2" program, under which the central bank was to buy $600 billion of the government bonds.
But QE2 has officially ended, meaning the Fed will no longer be a big buyer of Treasury bonds.
And now the U.S. Treasury needs to sell twice as many Treasury bonds to end investors.
But the problem is, who's going to buy them?
Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.
Not Japan, which is trying to rebound from a massive earthquake, tsunami and nuclear disaster - and is focusing all its spending on reconstruction.
And - as we've seen - the Bernanke-led Fed isn't jumping back into the bond market.
I'm telling you right now: We are headed for an epic bond market crash. If you don't know about it, or don't care, you could get clobbered.
But if you do know, and are willing to take steps now, you can easily protect yourself - and even turn a nice profit in the process.
A Timetable for the Coming Crash
I'm an old bond-market hand myself - my experience dates back to my days at the British merchant bank Hill Samuel in the 1970s - so I see all the signs of what's to come.Having the two biggest external customers of U.S. debt largely out of the market is a huge problem. Unfortunately, those aren't the only challenges the market faces. The challenges just get bigger from there - which is why I'm predicting a bond market crash.
Steadily rising inflation is one of those challenges. Inflation is a huge threat to the bond markets, and is almost certain to create a whipping turbulence that will ultimately infect the stocks markets, too.
Many pundits will tell you that if investor demand for bonds declines, and investor fear of inflation increases, bond-market yields could increase in an orderly fashion.
But I can tell you that the bond markets don't work like that. Price declines affect existing bonds as well as new ones, so the value of every investor's bond holdings declines. And with many of those investors heavily leveraged - especially at the major international banks - the sight of year-end bonuses disappearing down the Swanee River as bonds are "marked to market" will cause a panic. That's especially true when end-of-quarter or end-of-year reporting periods loom.
That's why we can expect a bond market crash, and most likely it will come in September or December - at the end of a quarter or fiscal year.
One sad - even scary - fact about the looming bond market crash is that Fed Chairman Bernanke won't be able to do much about it ... though he'll certain try.
Consumer price inflation is now running at 3.6% year-on-year while producer price inflation is running at 7.2%. In that kind of environment, a 10-year Treasury bond yielding 3% is no longer economically attractive. Since monetary conditions worldwide remain very loose, inflation in the U.S. and worldwide will trend up, not down.
The bottom line: At some point, the "value proposition" offered to Treasury bond investors will become impossibly unattractive. When that happens, expect a rush to the exits.
If Bernanke attempts "QE3" - a third round of "quantitative easing" - he will have a problem. If other investors head for the exits, Bernanke may find that the U.S. central bank is as jammed up as the European Central Bank (ECB) currently is with Greek debt: Both will end up as the suckers that are taking all the rubbish off everyone else's books.
There's a limit to how much Treasury paper even Bernanke thinks he can buy. And if everyone else is selling, that "limit" won't be high enough to save the bond market.
With Bernanke buying at a rapid rate, the inflationary forces will be even stronger, and each monthly Bureau of Labor Statistics report on price indices will cause another massive swoon in the Treasury bond market.
Eventually, there has to be a new head of the Fed - a Paul A. Volcker 2.0 who is truly committed to conquering inflation. Alas, it won't be Volcker himself since, at 84, he is probably too old.
But it might be John B. Taylor, who invented the "Taylor Rule" for Fed policy. The Taylor Rule is a pretty soggy guide for running a monetary system. But it's been flashing bright red signals about the current Fed's monetary policy since 2008.
However, since a Fed chairman who is actually serious about fighting inflation would be a huge burden for current U.S. President Barack Obama to bear - and could badly hamper his chances for re-election, any such appointment is unlikely before November 2012.
How to Profit From the Bond Market Crash
Given that reality, it's likely that Bernanke will attack any bond market crash that occurs ahead of the presidential election just by printing more money; there won't be any serious attempt to fix the fundamental problem, meaning inflation will continue to rise.For you as an investor, this insight leads to two conclusions that you can put to work to your advantage.
The coming economic atmosphere will be:
- Very good for gold and other hard assets.
- Challenging for Treasury bonds - prices will remain weak no matter how vigorously Bernanke attempts to support them.
First and foremost, if Bernanke were not around, I would expect gold prices to fall following a bond market crash. But since he's still at the helm at the Fed, I expect him to do "QE3" in the event of a crash. And that means gold - not Treasury bonds - would become an investor "safe haven."
You can expect gold prices to zoom up, peaking at a much higher level around the time Bernanke is finally replaced. Silver will also follow this trend. So buy substantial holdings of either physical gold and silver.
There is is folks, in a nutshell: IF YOU ARE NOT BUYING GOLD AND SILVER EXPECT YOUR DOLLAR TO CONTINUE TO BE WORTH LESS AND LESS IN THE COMING MONTHS! REMEMBER, IT'S YOUR MONEY AT RISK!!!!
If you need help finding good buys in GOLD or SILVER just e-mail me
busby.ronnie@yahoo.com
Thanks in advance,
Ronnie Busby
U.S. Treasury Bonds Collapse: Three Moves Investors Must Make To Protect Their Wealth
by Martin Hutchinson
The U.S. Federal Reserve has been buying U.S. Treasury bonds at a rate of about $75 billion a month. That's part of Fed Chairman Ben S. Bernanke's "QE2" program, under which the central bank was to buy $600 billion of the government bonds.
But QE2 has officially ended, meaning the Fed will no longer be a big buyer of Treasury bonds.
And now the U.S. Treasury needs to sell twice as many Treasury bonds to end investors.
But the problem is, who's going to buy them?
Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.
Not Japan, which is trying to rebound from a massive earthquake, tsunami and nuclear disaster - and is focusing all its spending on reconstruction.
And - as we've seen - the Bernanke-led Fed isn't jumping back into the bond market.
I'm telling you right now: We are headed for an epic bond market crash. If you don't know about it, or don't care, you could get clobbered.
But if you do know, and are willing to take steps now, you can easily protect yourself - and even turn a nice profit in the process.
Having the two biggest external customers of U.S. debt largely out of the market is a huge problem. Unfortunately, those aren't the only challenges the market faces. The challenges just get bigger from there - which is why I'm predicting a bond market crash.
Steadily rising inflation is one of those challenges. Inflation is a huge threat to the bond markets, and is almost certain to create a whipping turbulence that will ultimately infect the stocks markets, too.
Many pundits will tell you that if investor demand for bonds declines, and investor fear of inflation increases, bond-market yields could increase in an orderly fashion.
But I can tell you that the bond markets don't work like that. Price declines affect existing bonds as well as new ones, so the value of every investor's bond holdings declines. And with many of those investors heavily leveraged - especially at the major international banks - the sight of year-end bonuses disappearing down the Swanee River as bonds are "marked to market" will cause a panic. That's especially true when end-of-quarter or end-of-year reporting periods loom.
That's why we can expect a bond market crash, and most likely it will come in September or December - at the end of a quarter or fiscal year.
One sad - even scary - fact about the looming bond market crash is that Fed Chairman Bernanke won't be able to do much about it ... though he'll certain try.
Consumer price inflation is now running at 3.6% year-on-year while producer price inflation is running at 7.2%. In that kind of environment, a 10-year Treasury bond yielding 3% is no longer economically attractive. Since monetary conditions worldwide remain very loose, inflation in the U.S. and worldwide will trend up, not down.
The bottom line: At some point, the "value proposition" offered to Treasury bond investors will become impossibly unattractive. When that happens, expect a rush to the exits.
If Bernanke attempts "QE3" - a third round of "quantitative easing" - he will have a problem. If other investors head for the exits, Bernanke may find that the U.S. central bank is as jammed up as the European Central Bank (ECB) currently is with Greek debt: Both will end up as the suckers that are taking all the rubbish off everyone else's books.
There's a limit to how much Treasury paper even Bernanke thinks he can buy. And if everyone else is selling, that "limit" won't be high enough to save the bond market.
With Bernanke buying at a rapid rate, the inflationary forces will be even stronger, and each monthly Bureau of Labor Statistics report on price indices will cause another massive swoon in the Treasury bond market.
Eventually, there has to be a new head of the Fed - a Paul A. Volcker 2.0 who is truly committed to conquering inflation. Alas, it won't be Volcker himself since, at 84, he is probably too old.
But it might be John B. Taylor, who invented the "Taylor Rule" for Fed policy. The Taylor Rule is a pretty soggy guide for running a monetary system. But it's been flashing bright red signals about the current Fed's monetary policy since 2008.
However, since a Fed chairman who is actually serious about fighting inflation would be a huge burden for current U.S. President Barack Obama to bear - and could badly hamper his chances for re-election, any such appointment is unlikely before November 2012.
For you as an investor, this insight leads to two conclusions that you can put to work to your advantage.
The coming economic atmosphere will be:
First and foremost, if Bernanke were not around, I would expect gold prices to fall following a bond market crash. But since he's still at the helm at the Fed, I expect him to do "QE3" in the event of a crash. And that means gold - not Treasury bonds - would become an investor "safe haven."
You can expect gold prices to zoom up, peaking at a much higher level around the time Bernanke is finally replaced. Silver will also follow this trend. So buy substantial holdings of either physical gold and silver.
There is is folks, in a nutshell: IF YOU ARE NOT BUYING GOLD AND SILVER EXPECT YOUR DOLLAR TO CONTINUE TO BE WORTH LESS AND LESS IN THE COMING MONTHS! REMEMBER, IT'S YOUR MONEY AT RISK!!!!
If you need help finding good buys in GOLD or SILVER just e-mail me
busby.ronnie@yahoo.com
Thanks in advance,
Ronnie Busby
The U.S. Federal Reserve has been buying U.S. Treasury bonds at a rate of about $75 billion a month. That's part of Fed Chairman Ben S. Bernanke's "QE2" program, under which the central bank was to buy $600 billion of the government bonds.
But QE2 has officially ended, meaning the Fed will no longer be a big buyer of Treasury bonds.
And now the U.S. Treasury needs to sell twice as many Treasury bonds to end investors.
But the problem is, who's going to buy them?
Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.
Not Japan, which is trying to rebound from a massive earthquake, tsunami and nuclear disaster - and is focusing all its spending on reconstruction.
And - as we've seen - the Bernanke-led Fed isn't jumping back into the bond market.
I'm telling you right now: We are headed for an epic bond market crash. If you don't know about it, or don't care, you could get clobbered.
But if you do know, and are willing to take steps now, you can easily protect yourself - and even turn a nice profit in the process.
A Timetable for the Coming Crash
I'm an old bond-market hand myself - my experience dates back to my days at the British merchant bank Hill Samuel in the 1970s - so I see all the signs of what's to come.Having the two biggest external customers of U.S. debt largely out of the market is a huge problem. Unfortunately, those aren't the only challenges the market faces. The challenges just get bigger from there - which is why I'm predicting a bond market crash.
Steadily rising inflation is one of those challenges. Inflation is a huge threat to the bond markets, and is almost certain to create a whipping turbulence that will ultimately infect the stocks markets, too.
Many pundits will tell you that if investor demand for bonds declines, and investor fear of inflation increases, bond-market yields could increase in an orderly fashion.
But I can tell you that the bond markets don't work like that. Price declines affect existing bonds as well as new ones, so the value of every investor's bond holdings declines. And with many of those investors heavily leveraged - especially at the major international banks - the sight of year-end bonuses disappearing down the Swanee River as bonds are "marked to market" will cause a panic. That's especially true when end-of-quarter or end-of-year reporting periods loom.
That's why we can expect a bond market crash, and most likely it will come in September or December - at the end of a quarter or fiscal year.
One sad - even scary - fact about the looming bond market crash is that Fed Chairman Bernanke won't be able to do much about it ... though he'll certain try.
Consumer price inflation is now running at 3.6% year-on-year while producer price inflation is running at 7.2%. In that kind of environment, a 10-year Treasury bond yielding 3% is no longer economically attractive. Since monetary conditions worldwide remain very loose, inflation in the U.S. and worldwide will trend up, not down.
The bottom line: At some point, the "value proposition" offered to Treasury bond investors will become impossibly unattractive. When that happens, expect a rush to the exits.
If Bernanke attempts "QE3" - a third round of "quantitative easing" - he will have a problem. If other investors head for the exits, Bernanke may find that the U.S. central bank is as jammed up as the European Central Bank (ECB) currently is with Greek debt: Both will end up as the suckers that are taking all the rubbish off everyone else's books.
There's a limit to how much Treasury paper even Bernanke thinks he can buy. And if everyone else is selling, that "limit" won't be high enough to save the bond market.
With Bernanke buying at a rapid rate, the inflationary forces will be even stronger, and each monthly Bureau of Labor Statistics report on price indices will cause another massive swoon in the Treasury bond market.
Eventually, there has to be a new head of the Fed - a Paul A. Volcker 2.0 who is truly committed to conquering inflation. Alas, it won't be Volcker himself since, at 84, he is probably too old.
But it might be John B. Taylor, who invented the "Taylor Rule" for Fed policy. The Taylor Rule is a pretty soggy guide for running a monetary system. But it's been flashing bright red signals about the current Fed's monetary policy since 2008.
However, since a Fed chairman who is actually serious about fighting inflation would be a huge burden for current U.S. President Barack Obama to bear - and could badly hamper his chances for re-election, any such appointment is unlikely before November 2012.
How to Profit From the Bond Market Crash
Given that reality, it's likely that Bernanke will attack any bond market crash that occurs ahead of the presidential election just by printing more money; there won't be any serious attempt to fix the fundamental problem, meaning inflation will continue to rise.For you as an investor, this insight leads to two conclusions that you can put to work to your advantage.
The coming economic atmosphere will be:
- Very good for gold and other hard assets.
- Challenging for Treasury bonds - prices will remain weak no matter how vigorously Bernanke attempts to support them.
First and foremost, if Bernanke were not around, I would expect gold prices to fall following a bond market crash. But since he's still at the helm at the Fed, I expect him to do "QE3" in the event of a crash. And that means gold - not Treasury bonds - would become an investor "safe haven."
You can expect gold prices to zoom up, peaking at a much higher level around the time Bernanke is finally replaced. Silver will also follow this trend. So buy substantial holdings of either physical gold and silver.
There is is folks, in a nutshell: IF YOU ARE NOT BUYING GOLD AND SILVER EXPECT YOUR DOLLAR TO CONTINUE TO BE WORTH LESS AND LESS IN THE COMING MONTHS! REMEMBER, IT'S YOUR MONEY AT RISK!!!!
If you need help finding good buys in GOLD or SILVER just e-mail me
busby.ronnie@yahoo.com
Thanks in advance,
Ronnie Busby
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